Operations

6 Ways Limo Services Fail & How To Avoid Them

It’s not true: The adage half of small businesses fail in the first two years is wrong. Only 30% fail in that short time period, but after five years, yes, it’s true. Half of new businesses are gone. So says the U.S. Departments of Commerce and Labor.

And if you read other sources like Fast Company and Bloomberg, the statistics are even more dismal. A massive leap of faith is needed to begin a new business venture.

Failure is a tough topic, but planning is critical to avoid the major pitfalls that burden any business. Planning for contingencies is important, too. So while you build processes, grow the client base, and stand out in your market, be sure to plan for the best and prepare for the worst. When a business closes its doors early in its life cycle, it is usually not due to a happy owner who has made too much money and wants to retire. No, it’s sad, ugly, and painful, and worth avoiding.

Established companies are not immune to failure, either. For the larger ones with years of experience, it is often an inability to change direction, to flex when the market demands it, or to keep sharp when competition changes. Still, getting to be one of the “old guard” is not easy.

In the tradition of the “6 Common Failures” format familiar in business media, here are six major pitfalls in the limousine industry to avoid for future success.

#1: Starting Your Company for the Wrong ReasonsWe all want to make money. And maybe your think striking out on your own will allow more flexibility. Perhaps you want to build something for your children to take over. These benefits may come to pass, but they do not make a business succeed on its own. Business starters often get frustrated at not having these things happen quickly.

What are the right reasons? First, you must firmly believe and know, from research and experience, you have a solution to a market need. You must love this 24/7 industry and the business so you will be determined to get through the inevitable obstacles. You must have a passion for the people around you, often family, who will help to make or break you. And they need to feel the same way. You must also have the ability to survive the rough patches. Remember, you have lots of metal on the ground rolling at all hours of day and night. You will inevitably encounter problems on the fly. Paint a clear picture of your goal and be sure the same philosophy is shared by others vested in the business.

#2: Not Enough Capital & Financial Know-HowBusiness owners, especially new ones, often underestimate how much money is needed to operate. Pie-in-the-sky projections coupled with insufficient capital resources will kill an operator fast. Planning for business needs and having extra money for unexpected events is especially important in the first few years. You’ll also need money and capital to either buy or lease expensive luxury vehicles.

What to do? Use someone smarter than you to help with financial planning. A personal banker, small business coach, or seasoned limo operator good with numbers often works at no cost. Each could help determine what your operation needs to start and stay in business. Companies face so many risks with labor issues, lawsuits, sudden events like illnesses, and market shifts that you must understand everything that may be needed in the early stages, and amid challenges. Even for established operators, access to capital is essential for growth, reinvestment, and financial safety. Flexibility and access will be important for many years — that is, if you survive the first few.

#3: You’re Not The Best ManagerWe have to look in the mirror on this one. It may be one of the reasons you are struggling. This may actually be the top reason operators fail. This industry has very few barriers to entry — a simple driver’s license may have gotten you started as a chauffeur, but new owners may lack relevant business and management expertise in areas such as finance, operational procedures, fleet and safety concerns, and managing employees.

How to learn to lead when you’re already the leader: Recognize where you can grow. Seek out mentors and operator groups for guidance. Stay educated and constantly review your operational numbers and data. This can never end, no matter how comfortable you are with the business. A successful manager also creates a creative and productive working environment. Forunately, LCT offers two annual trade shows where you can gain this invaluable experience.

(graphic by Kevin Haegele/LCT)

#4: Lack of PlanningMany organizations do not spend enough time planning before changing. Likewise, new operators may not plan correctly, either. Planning for growth, for the unexpected, and for the actual business are the three essentials. How can you ever get from Point A to Point B without a business plan, just like two addresses for a pick up and drop off? A night on the town, an event, and a business all need a plan. Most unnerving are the unexpected curveballs in a heavily regulated industry with labor and insurance needs.

What to plan for: First, a business must have a realistic plan based on reliable data to create reasonable and measurable goals. A thorough business plan describes the operation’s vision and goals. It evaluates the competition and considers potential problems and solutions. It develops a solid financial plan with accurate and educated forecasts for revenue, fleet, workforce needs, and other operating expenses. And it coordinates sales and marketing to meet the company’s goals.

#5: Forgetting Your CustomersYour operation will not thrive if you don’t know what your clients expect. Are you listening to them? Is revenue declining? Are you aware of service issues? Maybe something has slipped by, but you have no way to know. In the limousine business, it’s all about experiences you create, and a focus on details.

How to avoid losing touch: Use surveys after rides to collect data. Make random quality calls to clients to stay in touch. Send a simple birthday, anniversary, or congratulatory wish. Personal relationships have always been more important than perfect service, and a friendly approach with clients will keep them loyal when the unfortunate service issue occurs. Keep a database record of client likes, dislikes, tastes, favorites, habits, etc., and then adjust your service repertoire accordingly.

#6: Growing Too FastA successful business can lead to blissful, prosperous fates, but unmanaged growth is a leading cause of business disarray while even rapid planned expansion can lead to bankruptcy. You don’t want to stifle growth, but be careful what you ask for. Too much too soon can be very destructive and costly. In the chauffeured world, starting out with one or a handful of vehicles while adding slowly overtime has worked well for thousands of operators.

How to avoid growth problems: Just like daily operations, growth and expansion take careful planning. So before you expand the fleet, you must know you already have the revenue to fully pay for each new vehicle. Breaking out each vehicle as its own P&L unit helps you keep better tabs on day-to-day finances while guarding against long-term surprises.

If you think a new client contract sounds good, confirm it with a thorough analysis. For example, a hotel contract may mean extra labor for standby cars. Or a corporate client may demand very low prices that don’t make sense. Use those experts surrounding you to analyze the best way scale your growth. Whenever doing RFPs, spend the time gathering as much information about the prospective client company as possible, and never overstate or overpromise what you can deliver. The loss of a valued client supplying a good chunk of your revenue can send your operations reeling.

Our industry has many natural challenges, but we create many of them. By recognizing the mostly likely problems, such hardships will have little effect. With proper foresight, the biggest hurdles will seem smaller.

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